Yamana Gold Inc. (AUY) is set to release its fourth-quarter 2014 results after the market closes on Feb 11. Last quarter, the mining company delivered a 120% negative surprise.
Yamana has beaten the Zacks Consensus Estimate in one of the trailing four quarters while missing in other three with an average negative surprise of 32.98%. The Zacks Consensus Estimate for Yamana for the fourth quarter has declined by a penny per share over the last 60 days.
Let’s see how things are shaping up for this announcement.
Factors to Watch For
Yamana is focused on containing costs, protecting and preserving margins and increasing production to generate, maximize and sustain cash flow. By concentrating on approaches and measures that best contribute to cash flow generation, and by demonstrating strong financial performance, the company is expected to deliver value to shareholders.
In Jun 2014, Yamana added another high quality, high margin cornerstone asset, the Canadian Malartic mine (Canadian Malartic), along with prospective exploration assets to its portfolio through a joint acquisition with Agnico Eagle of Osisko Mining Corporation. This transaction is in line with the company's goal of cash flow generation and maximization.
Yamana expects its production and cash flows to be higher on a sequential comparison basis in the fourth quarter. For 2014, production is expected in the band of 1.4 million to 1.42 million gold equivalent ounces (GEO) at all-in sustaining cash costs of $825 to $875 per GEO.
Yamana sees higher production in the coming years with contributions from cornerstone assets and Cerro Moro, a very high grade, low cost, gold and silver development stage project for which the company is planning to commit to development in 2015 and 2016. Production from Cerro Moro is expected to start in late 2016 or early 2017. A formal construction and development decision is expected in 2015.
Along with an anticipated rise in production over the next several years, the company’s cost structure is also expected to decrease, which would offer overall margin improvements and boost cash flow.
Yamana has made remarkable progress in separating its core and non-core portfolios, improving the prospects for certain previously underperforming assets that are yet to reach their potential, particularly Pilar and C1 Santa Luz. In this regard, the company is advancing toward structuring its inter-corporate holdings in order to form a new subsidiary company, Brio Gold Inc. that will hold Fazenda Brasileiro, Pilar and C1 Santa Luz as well as some associated exploration concessions, which are currently retained as non-core assets.
Earnings Whispers
Our proven model does not conclusively show that Yamana will beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The Earnings ESP for Yamana is -50% — the difference between the Most Accurate estimate of 2 cents and the Zacks Consensus Estimate of 4 cents.
Zacks Rank #3 (Hold): Yamana currently holds a Zacks Rank #3, which when combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some other companies in the basic materials sector you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Compass Minerals International Inc. (CMP) has an earnings ESP of +2.6% and a Zacks Rank #2 (Buy).
Ryerson Holding Corporation (RYI) has an earnings ESP of +47.83% and a Zacks Rank #3.
Kinross Gold Corporation (KGC) has an earnings ESP of +100% and a Zacks Rank #3.
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